20180608-交银国际证券-中兴通讯-00763.HK-Settlement_with_US_Commerce_Dept；_lower_estimates_TP_4页_558kb

ZTE (763 HK) Company Update Summary - 8 June 2018

Core Content Overview

This report provides an update on ZTE's recent developments following a settlement with the US Commerce Department, along with financial performance and stock rating insights.

Key Developments

• Settlement with US Commerce Dept: ZTE has agreed to new penalties to replace the BIS denial order imposed on 16 April 2018. The settlement includes:

  • A penalty of US$1bn and US$400m suspended in escrow (total US$2.29bn).
  • A compliance team selected and reporting to the US government for 10 years.
  • Replacement of the entire board of directors and senior leadership.

• Market Reaction: The settlement is largely in line with market expectations. However, the company's shares may still face volatility due to potential regulatory reversals.

• Share Trading Resumption: ZTE is expected to resume trading after the annual shareholder meeting on or before 30 June 2018, which may also see the announcement of management and board changes.

• Stock Rating: BOCOM Int'l maintains a Sell rating, citing the likely downside in share price and negative earnings outlook.

Financial Highlights

Revenue (RMB m)

• 2016: 101,233
• 2017: 108,815
• 2018E: 96,345
• 2019E: 108,470
• 2020E: 116,430

YoY Growth (%)

• 2016: NA
• 2017: 7
• 2018E: -11
• 2019E: 13
• 2020E: 7

Net Profit (RMB m)

• 2016: (2,357)
• 2017: 4,568
• 2018E: (7,879)
• 2019E: 3,930
• 2020E: 4,498

EPS (RMB)

• 2016: 0.57
• 2017: 1.09
• 2018E: (1.88)
• 2019E: 0.94
• 2020E: 1.07

EPS Change (%)

• 2018E: NA
• 2019E: -32

P/E (x)

• 2016: NA
• 2017: 20.2
• 2018E: NA
• 2019E: 23.4
• 2020E: 20.5

P/B (x)

• 2016: 3.5
• 2017: 2.9
• 2018E: 4.9
• 2019E: 4.3
• 2020E: 3.9

P/S (x)

• 2016: 1.2
• 2017: 0.9
• 2018E: 0.9
• 2019E: 0.9
• 2020E: 0.8

EV/EBITDA (x)

• 2016: 19.2
• 2017: 1.2
• 2018E: 36.6
• 2019E: 9.8
• 2020E: 8.3

Dividend Yield (%)

• 2016: 0.0
• 2017: 1.2
• 2018E: 0.0
• 2019E: 1.1
• 2020E: 1.3

ROE (%)

• 2016: (8.4)
• 2017: 15.7
• 2018E: (31.3)
• 2019E: 19.5
• 2020E: 19.8

ROA (%)

• 2016: (1.1)
• 2017: 3.8
• 2018E: (5.2)
• 2019E: 3.7
• 2020E: 4.0

Key Financial Metrics

• Last Close: HK$25.60
• Target Price: HK$19.00 (↓)
• Upside: -26%

Stock Performance

• 52-week high (HK$): 33.20
• 52-week low (HK$): 16.70
• Market Cap (HK$ m): 151,241.15
• Avg Daily Vol (m): 0.00
• YTD Change (%): -12.78
• 200-day MA (HK$): 26.51

Analyst Rating

• Stock Rating: Sell
• Reason: The settlement, management turnover, and revenue loss are expected to lead to volatility and a likely downside in share price.

Analyst Certification

• The authors of this report declare that:
  • All views reflect their personal opinions.
  • No part of their compensation is tied to the recommendations.
  • No insider information was used in the analysis.

Analyst Disclosure

• BOCOM International has a business relationship with several entities, including:

  • Orient Securities Company Limited
  • Everbright Securities Company Limited
  • Guolian Securities Co. Ltd.
  • Guotai Junan Securities Co. Ltd.
  • China Xinhua Education Group Limited

• Some analysts may hold shares in related companies, such as Shima Property Holdings Limited.

Disclaimer

• This report is strictly confidential and for private circulation only.
• No part of the report may be copied, shared, or distributed without prior written consent.
• The information is not guaranteed in terms of accuracy, completeness, or fairness.
• The views and recommendations are subject to change without notice.
• Investors are advised to consult their own financial advisors before making any investment decisions.